SBI comes to rescue! Coronavirus-hit MSMEs to get loans in 5 days

KEY HIGHLIGHTS

• State Bank of India (SBI) has directed its branch offices to process and disburse working capital loans within 5 days
• Finance Minister Nirmala Sitharaman had said that the liberal credit scheme would benefit 45 lakh units
• SBI has advised local branches to release funds with due understanding of the ground realities
• Existing primary and collateral securities already available with the bank should be extended for the additional working capital term loans

State Bank of India (SBI) has directed its branch offices to process and disburse additional working capital loans within 5 days to help MSMEs and other borrowers overcome coronavirus impact.

The circular issued by SBI's SME Business Unit to local head offices comes as a reassurance for struggling firms which fear banks could take a long time in processing their applications.

Also read: Economic relief package 'frivolous and gimmicky,' say MSME bodies

Noting that MSMEs are the worst-affected from Covid-19 and facing maximum disruption in cash flows, the SBI has underlined the need for expediting loan applications. It has, however, advised its branches to ensure that additional credit limit is used strictly for intended purpose.

In the internal circular, the SBI has attached a set of frequently asked questions (FAQs) stating that the amount disbursed under the scheme will go to meet operating liabilities and restarting of operations of the unit.

Also read: New MSME definition may deprive smaller players of benefits

"Hence, the same is to be released with due understanding of the ground realities and to provide support at a crucial juncture," it said in its May 26 circular seen by BusinessToday.In.

The SBI has also clarified that since the facility is extended against 100% guarantee provided by National Credit Guarantee Trustee Company Ltd (NCGTC), no separate collateral security needs to be obtained.

"However, the existing primary and collateral securities already available with the Bank should be extended for this facility," the FAQ said.

Also read: Rs 3 lakh crore MSME scheme: Non-registered retailers, small businesses eligible for emergency credit

The government had recently announced Rs 3 lakh crore collateral-free and government guaranteed loans for MSMEs, traders, Mudra borrowers and other eligible firms. The scheme covers existing borrowers with outstanding credit limit of up to Rs 25 crore as on 29 February 2020 and a turnover of up to Rs 100 crore. They are eligible for upto 20% of their entire outstanding loans as emergency credit line.

While announcing the stimulus package for MSMEs on May 13, Finance Minister Nirmala Sitharaman said that the liberal credit scheme would benefit 45 lakh units. The government has reiterated the need for urgent disbursement of loans under the scheme and nudged banks to expedite the process.

The interest rate charged by banks and financial institutions has been capped at 9.25% for the guaranteed emergency credit line (GECL). In case of NBFCs, the upper limit of interest rate is 14%.

Also read: MSME 100% credit guarantee: Banks see red flags in fineprint